Research on market and regulatory efforts to lower the cost of small dollar, short-term credit

On October 26, 2004, the University of Massachusetts Isenberg School of Management received a grant from the Annie E. Casey Foundation to support research on market and regulatory efforts to lower the cost of small dollar, short-term credit for low-income workers and their families. Specifically, under the terms of the grant proposal, the research was to:

• Identify payday loan alternatives;
• Develop case studies and list practices to meet short-term credit needs;
• Identify obstacles to competition; and
• Identify potential regulatory options to lower the cost of short-term credit.

Our research included numerous, extensive interviews with regulatory officials; consumer advocates; officials from the banking, credit union, and payday loan industries; academic experts; and others regarding the potential for competition from depository institutions to lower the costs of small dollar , short-term credit for the low- and moderate-income (LMI) population. Through that process, we identified a major multiline and monoline payday lender for in-depth case study, as well as several depository institutions offering payday loan alternatives.

In addition, we examined Citibank’s Checking Plus program, which is an overdraft line of credit for checking account customers, because we believe it is typical of overdraft lines of credit (LOC) offered by most banks and credit unions and could be potentially adapted to LMI families’ small dollar credit needs. Indeed, Citibank has started to experiment with making Checking Plus more widely available based on flexible credit criteria, an effort that we believe should be encouraged and replicated by other major banks. The following report is the result of our six-month research effort.

Filed under Loan | Research on market and regulatory efforts to lower the cost of small dollar, short-term credit

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